Democratic senators in Washington are resurrecting a proposal to donate $1,000 to every American child at birth, also called a ‘baby bond.’
The “baby bond” funds, known as American Opportunity Accounts, would then be topped up with up to $2,000 each year, depending on the income of the family.
How Would ‘Baby Bonds’ Work?
The accounts would be guaranteed by the federal government and maintained by the U.S. The Treasury Department.
Account holders would be allowed to access the funds once they reached the age of 18 to pay for approved expenses such as further education or home purchase.
The concept is colloquially known as “baby bonds,” however the legislation is formally known as the American Opportunity Accounts Act. Rep. Ayanna Pressley of Massachusetts and Sen. Cory Booker of New Jersey submitted the bill last week in the House and Senate, respectively.
- The American Opportunity Accounts Act would offer $1,000 in a publicly sponsored, interest-bearing savings account to every American kid at birth.
- Families would receive an additional deposit into the account based on their income each year. High-income families would get no additional deposit, whereas low-income families would receive $2,000 each year.
- A youngster growing up in a low-income household would have an estimated account balance of $46,215 by the age of 18.
- When the account holder reaches the age of 18, he or she can utilize the funds for wealth-building activities such as purchasing a home, paying for college, starting a business, or saving for retirement. Until the receiver reaches the age of 59.5, there are no restrictions on the funds.
Sen. Booker originally submitted the concept in 2018, then again in 2021 with Rep. Pressley, sparking widespread interest at the state and local levels.
- According to the nonprofit Urban Institute, Connecticut, Washington, D.C., Similar laws are now in place in New York and California, but they are not widely available. In Washington, D.C., for example, the local government offers low-income families a $500 baby bond account at birth, as well as a yearly deposit of up to $1,000 to families who remain within 300% of the poverty level.
- Furthermore, state legislators in Delaware, Iowa, New Jersey, New York, Washington, Nevada, Wisconsin, and Massachusetts have introduced infant bond legislation.
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Bipartisan Support Varies
The return of the federal idea, rather than a state-by-state approach to baby bonds, gives an opportunity for a more universal program, according to Madeline Brown, senior policy associate at the Urban Institute’s Research to Action Lab.
According to the study, a national strategy might lower the wealth inequality between young white and Black Americans to a 1 to 4 ratio. According to median income estimates, young white Americans have 16 times the wealth of young black Americans.
According to the Urban Institute, in order for baby bonds to successfully reduce wealth inequality, the policies should include six components.
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